Question

Proprietary funds are

A. Funds used to account for the activities of a government that are carried out primarily to provide services to citizens.
B. Funds used to account for a government's ongoing organizations and activities that are similar to those operated by for-profit organizations.
C. Funds used to account for monies held by the government in a trustee capacity.
D. Funds used to account for all financial resources except those required to be accounted for in another fund.
E. Funds used to account for revenues that have been legally restricted as to expenditure.

Answer 1

Proprietary funds account for a government's operations that are run similarly to for-profit businesses. They are intended to be self-sustaining and are part of the broader concept of a public enterprise, differing from other governmental or private sector funds in purpose and management.

Step-by-step explanation:

Proprietary funds are used to account for a government's ongoing organizations and activities that are similar to those operated by for-profit organizations. In the context of government accounting, proprietary funds are essential because they help identify transactions and operations that are commercial in nature, whereby the government provides services to the public in exchange for a fee or charge. These funds include services such as utilities and public transport, which operate in a way similar to private enterprises. The operations funded by proprietary funds are meant to be self-sustaining through user charges. This contrasts with government funds that account for tax-supported activities.

These funds also relate to the concept of a public enterprise, where the factors of production are owned and operated by the government. Contrarily, in the private sector, private companies may be run by their owners, partnerships, or public shareholders, with a focus on profit. Proprietary funds capture the financial transactions of governmental activities that are market-oriented, offering goods or services to the general public and other governmental units.

It is important to distinguish proprietary funds from other forms of government-held funds, such as those held in a trustee capacity or those that are restricted for a specific purpose. For instance, debt held by government trust funds or funds allocated through a special-purpose vehicle for large infrastructure projects are managed differently compared to proprietary funds. Additionally, the financial principles that govern corporate governance in the private sector differ significantly from the public accountability and service motives underlying proprietary funds.